There's No Such Thing As Business Ethics

Chapter 1

Whatever Happened to Business Ethics?

ON NOVEMBER 8, 2001, PEOPLE WERE SHOCKED WHEN one of the hottest companies of
the booming nineties, Enron, admitted to using accounting practices that had
inflated its income figures by $586 million over a four-year period.1 Less than
a month later, Enron filed Chapter 11 bankruptcy, and early in 2002, the Justice
Department launched a criminal investigation into the company's practices.
Investigators wanted to determine how much executives knew about the company's
status, as they told their employees to hold their shares of Enron stock, but
sold more than $1 billion of their own. The company went belly-up, employees'
retirement savings were all but wiped out, and millions of investors lost a
total of more than $60 billion. Investors were stunned. And then the questions
came: How could something like this happen? Why did it happen? Who let it
happen?

A few months later, on March 27, 2002, the circle of people talking about
ethics began to widen when the nation's sixth largest cable company, Adelphia
Communications, announced that it also had financial problems. Founder John
Rigas, along with his sons Timothy, Michael, and James, was accused of using
company assets as collateral for loans totaling $3.1 billion to make personal
purchases and finance family projects. After removing the Rigases, the company
restated its earnings and later filed Chapter 11 bankruptcy. The value of its
stock plummeted. On June 3, 2002, Adelphia was delisted from NASDAQ. Even more
people became worried about ethics in business. And more people were asking
questions: What kind of people would do such things? How could this happen?
Could it happen again?

That very same day, Dennis Kozlowski, CEO of Tyco, was charged by the
district attorney of Manhattan in New York City with evading $1 million in sales
tax on artwork and other items he had purchased for himself with company funds.
As investigators looked further into Kozlowski's actions, they alleged that he
and two other Tyco executives had looted $600 million from the company. The
worry about private unethical practices in business was becoming a very public
concern.

Later that month, Time magazine declared it to be the "Summer of Mistrust"
and reported, "Most Americans— 72% in the Time /CNN poll—fear that they see not
a few isolated cases but a pattern of deception by a large number of companies."
And that was before word got out about WorldCom, who announced that an internal
audit found improper accounting procedures. Their profits from 2000 to 2002 had
been overstated by $7.1 billion! And WorldCom said $3.8 billion in expenses had
been improperly reported during five quarters. The consequences: Seventeen
thousand workers lost their jobs, WorldCom restated its financial results
(wiping out all profits during those quarters), and shares of its stock fell in
value by 75 percent. And the questions in the mind of the public only increased:
Why is this happening? How many companies are unethical? Whatever happened
to business ethics?

BACKLASH!

Most people are disgusted with the state of ethics in America. They are sick
of dishonesty and unethical dealings. UC Berkeley accounting professor Brett
Trueman, who teaches at the Haas School of Business, remarked, "This is why the
market keeps going down every day—investors don't know who to trust. As these
things come out, it just continues to build." Of course, the problems aren't
limited to just the business world. The public was horrified by the abuses that
occurred in the Catholic Church and how the incidents were covered up. Many were
surprised by reports that Pulitzer prize-winning history professor Stephen
Ambrose had plagiarized passages from historian Thomas Childers for his book
The Wild Blue. And those who watched the Winter Olympic Games in Salt
Lake City were outraged when a figure-skating judge claimed that her decision
had been coerced, altering the outcome of the pairs competition.

THE ETHICAL DILEMMA

Our disgust is now turning to discussion. People want to know: Why is ethics
in such a terrible state? Although there are many possible responses to that
question, I believe when people make unethical choices, they do so for one of
three reasons:

1. We Do What's Most Convenient

An ethical dilemma can be defined as an undesirable or unpleasant choice
relating to a moral principle or practice. What do we do in such situations? Do
we do the easy thing or the right thing? For example, what should I do when a
clerk gives me too much change? What should I say when a convenient lie can
cover a mistake? How far should I go in my promises to win a client? As human
beings, we seem prone to failing personal ethics tests.

An ethical dilemma can be defined as an undesirable or unpleasant choice
relating to a moral principle or practice.

As human beings, we seem prone to failing personal ethics tests. Why do we do
something even when we know it's wrong? Do we cheat because we think we won't
get caught? Do we give ourselves permission to cut corners because we
rationalize that it's just one time? Is this our way of dealing with
pressure?

2. We Do What We Must to Win

I think most people are like me: I hate losing! Businesspeople in particular
desire to win through achievement and success. But many think they have to
choose between being ethical and winning. The Atlanta Business
Chronicle reports that a group of executives came together recently at a
leading company in Atlanta to brainstorm ideas for a three-day national
conference to be attended by several thousand sales employees. As the team
shared ideas for different sessions, a senior vice president of the corporation
enthusiastically suggested, "Why don't we do a piece on ethics?"

It was as if someone had died. The room went silent. An awkward moment later,
the discussion continued as if the vice president had never uttered a word. She
was so taken aback by everyone's reaction, she simply let the idea drop.

Later that day, she happened to run into the company's CEO. She recounted to
him her belief that the subject of ethics should be addressed at the conference.
She expected him to agree wholeheartedly. Instead he replied, "I'm sure everyone
agrees that's an important issue. But there's a time and a place for everything.
The sales meeting is supposed to be up-beat and motivational. And ethics is such
a negative subject."

That CEO isn't alone in his opinion of ethics. It's the old suspicion that
good guys finish last. They agree with Harvard history professor Henry Adams,
who stated, "Morality is a private and costly luxury." Ironically, in today's
culture of high debt and me-first living, ethics may be the only luxury some
people are choosing to live without!

Many people believe that embracing ethics would limit their options,
their opportunities, their very ability to succeed in business.

If I believe that I have only two choices: (1) to win by doing whatever it
takes, even if it's unethical; or (2) to have ethics and lose-I'm faced with a
real moral dilemma. Few people set out with the desire to be dishonest, but
nobody wants to lose.

Many people believe that embracing ethics would limit their options, their
opportunities, their very ability to succeed in business.

3. We Rationalize Our Choices with Relativism

Many people choose to deal with such no-win situations by deciding what's
right in the moment, according to their circumstances. That's an idea that
gained legitimacy in the early 1960s when Dr. Joseph Fletcher, dean of St.
Paul's Cathedral in Cincinnati, Ohio, published a book called Situation
Ethics. In it he said that love was the only viable standard for
determining right from wrong. The Executive Leadership Foundation states,

According to Fletcher, right is determined by the situation, and love can
justify anything—lying, cheating, stealing...even murder. This philosophy spread
rapidly throughout the theological and educational worlds....Since the 1960s,
situational ethics has become the norm for social behavior. After spreading
rapidly through the worlds of education, religion, and government, it has
penetrated a new area-the business world. The result is our ethical situation
today.

The result is ethical chaos. Everyone has his own standards, which change
from situation to situation. And that stance is encouraged. A course entitled
"The Ethics of Corporate Management," offered at the University of Michigan,
says in its description, "This course is not concerned with the personal moral
issues of honesty and truthfulness. It is assumed that the students at this
university have already formed their own standards on these issues."

So whatever anyone wants to use as the standard is okay. Making matters worse
is people's natural inclination to be easy on themselves, judging themselves
according to their good intentions-while holding others to a higher standard and
judging them by their worst actions. Where once our decisions were based on
ethics, now ethics are based on our decisions. If it's good for me, then it's
good. Where is this trend likely to end?

A CHANGE IN THE WIND

Fortunately, there is an increasing desire for ethical dealing in business.
Executive recruiters Heidrick and Struggles state, "In a new era for business,
CEOs face a new mandate. Glamour and glitz are out. Transparency— in terms of
ethics, values, and goals—is in." My friend Bruce Dingman, president of
management consulting firm R. W. Dingman, agrees. He recently sent me an
e-mail:

Thought you might like to know what we are seeing in the marketplace. Changes
in corporate values or strategies are often reflected in what our clients tell
us they now seek in candidates.... Yes, they still want key executives who can
make the company money, are willing to make tough decisions, and fit the
management team, but now there is a stronger concern for integrity, not playing
it quite as close to the edge, and taking a somewhat longer view in strategies
and the setting of more realistic, more conservative goals.

And Jeremy Farmer, a seasoned recruiter at Bank One in Chicago, says that he
and his colleagues are taking ethics into greater account when looking for
potential employees: "We're asking the ethics-type questions, and we're doing
behavioral interviewing."

It's good to know that there is a desire for change regarding ethics in our
culture. The bad news is that most people don't know how to make that
transition. Their situation is like that of a group of passengers in a corny
joke I heard many years ago. The people were on an airplane during a
cross-country flight. About two hours into their journey they heard a voice say
over the loudspeaker, "This is your pilot. We are currently cruising at 35,000
feet at an air speed of 700 knots. We have some bad news and some good news. The
bad news is we're lost. The good news is we're making excellent time."

SOME CURRENT MARKETPLACE SOLUTIONS

If you look at what's happening in the marketplace, you'll see that even
though we desire honesty and plain dealing, we're still not winning the battle
of ethics. Take a look at how people in our culture are currently trying to
address the problem. They...

Teach Remedial Ethics

When universities admit students who can't do simple algebra, they send them
to a remedial math class. According to Joan Ryan, columnist for the San
Francisco Chronicle, businesses are taking the same kind of approach.
They're forcing their employees to take remedial ethics. Companies are hiring
firms to offer online ethics classes and consultants to produce huge ethics
manuals that Ryan says "often read like tax codes, complete with loopholes and
fine print." It's not helping. Worst of all, the desire of such companies often
isn't to make their businesses more ethical. Ryan states, "It's about evading
punishment. Under federal guidelines, companies that have ethics programs are
eligible for reduced fines if convicted of wrongdoing."

Perform an Ethical Flea Dip

Another approach is to "treat" ethical offenders when caught. Management
consultant Frank J. Navran calls that an "ethical flea dip." The problem with
this approach is that it is as effective as a flea dip when a dog's environment
isn't changed. The fleas come right back. If the environment—the systems and
goals—of an organization encourage and reward unethical behavior, then merely
addressing individual employees' actions will not improve the situation.

Rely on the Law

Some companies have given up entirely on trying to figure out what's ethical
and are instead using what's legal as their standard for decision making. The
result is moral bankruptcy. When Kevin Rollins, president of the Dell Computer
Corporation, was asked about the role of ethics in business, he paraphrased
Russian dissident Aleksandr Solzhenitsyn, who said, "I've lived my life in a
society where there was no rule of law. And that's a terrible existence. But a
society where the rule of law is the only standard of ethical behavior is
equally bad." Rollins asserts, "Solzhenitsyn said that if the United States only
aspires to a legal standard of moral excellence, we will have missed the point.
Man can do better. I thought that was a nice comment on the ethics of companies
that say, 'Well, legally, it was just fine.' We believe you have to aspire to
something higher than what's legal. Is what you're doing right?"

THIS TIME IT'S PERSONAL

One of our problems is that ethics is never a business issue or a social
issue or a political issue. It is always a personal issue. People say they want
integrity. But at the same time, ironically, studies indicate that the majority
of people don't always act with the kind of integrity they request from others.
Among college students, 84 percent believe the United States is experiencing a
business crisis, and 77 percent believe CEOs should be held responsible for it.
However, 59 percent of those same students admit to having cheated on a test. In
the workplace, 43 percent of people admit to having engaged in at least one
unethical act in the last year, and 75 percent have observed such an act and
done nothing about it. The same person who cheats on his taxes or steals office
supplies wants honesty and integrity from the corporation whose stock he buys,
the politician he votes for, and the client he deals with in his own
business.

The same person who cheats on his taxes or steals office supplies wants
honesty and integrity from the corporation whose stock he buys, the politician
he votes for, and the client he deals with in his own business.

It's easy to discuss ethics and even easier to be disgusted with people who
fail the ethics test-especially when we have been violated by the wrongdoing of
others. It's harder to make ethical choices in our own lives. When we are faced
with unpleasant choices, what are we going to do? In the 1980s, former President
Ronald Reagan quipped that when it comes to the economy, it's a recession when
your neighbor loses his job, but it's a depression when you lose yours! Ethics
is similar. It's always harder when I'm the one having to make the choice.

THE BOTTOM LINE ON ETHICS

I want to be ethical, and I believe that you do too. Furthermore, I know it
really is possible to do what's right and succeed in business. In fact,
according to the Ethics Resource Center in Washington, D.C., companies that are
dedicated to doing the right thing, have a written commitment to social
responsibility, and act on it consistently are more profitable than those who
don't. James Burke, chairman of Johnson and Johnson, says, "If you invested
$30,000 in a composite of the Dow Jones thirty years ago, it would be worth
$134,000 today. If you had put that $30,000 into these [socially and ethically
responsible] firms-$2,000 into each of the fifteen [in the study]-it would now
be worth over $1 million."

If you embrace ethical behavior, will it automatically make you rich and
successful? Of course not. Can it pave the way for you to become successful?
Absolutely. Ethics + Competence is a winning equation. In contrast, people who
continually attempt to test the edge of ethics inevitably go over that edge.
Shortcuts never pay off in the long run. It may be possible to fool people for a
season, but in the long haul, their deeds will catch up with them because the
truth does come out. In the short term, behaving ethically may look like a loss
(just as one can temporarily appear to win by being unethical).
However, in the long term, people always lose when they live without ethics.
Have you ever met anyone who lived a life of shortcuts, deception, and cheating
who finished well?

King Solomon of ancient Israel, reputed to be the wisest man who ever lived,
said it this way:

Companies that are dedicated to doing the right thing, have a written
commitment to social responsibility, and act on it consistently are more
profitable than those who don't.

The ways of right-living people glow with light; the longer they live, the
brighter they shine. But the road of wrongdoing gets darker and darker—
travelers can't see a thing; they fall flat on their faces.

U.S. representative and educational rights advocate Jabez L. M. Curry
observed, "A state to prosper must be built on foundations of a moral character,
and this character is the principal element of its strength, and the only
guaranty of its permanence and prosperity." The same can be said of a business.
Or of a family. Or of any endeavor you wish to see thrive and endure.

However, that foundation cannot be built by the organization as a whole. It
must be built beginning with each individual. And it must be done in the face of
continuous pressure to perform at the expense of doing the right thing.

How do you know what's right? How do you navigate even the most difficult of
pressure-filled situations? Where can you find a standard that will work in
every situation-a guide that will help you to sleep well at night, prosper in
business, improve your marriage, and have confidence that you're doing all you
can every time? I offer what I believe to be the best answer to those questions
in the next chapter.

DISCUSSION QUESTIONS

1. When you think of the subject of ethics, what is your gut reaction? Is it
positive or negative? Is it something you would look forward to thinking about,
discussing, and applying to your life? Deep down, do you believe that a person
can be ethical and still win? Explain.
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2. Do you use one set of behavioral standards for all areas of your life, or
do you use several-depending on where you are, who you're with, or what you're
doing? Are you essentially the same person using the same standards at work and
home, with clients and family members, while playing ball or helping at church?
Do you believe it's possible and desirable to use just one standard in every
area of life? Explain. __________________________________________
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3. Think about someone you trust completely. (If you can't think of anyone,
explore why you are reluctant to trust people.) Now think about why you trust
him or her. List qualities describing that person.
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4. What are you currently using as an ethical guideline? Describe it.
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